The ISA Shake-Up Coming in April 2027: What You Need to Do This Tax Year

The UK government has confirmed sweeping changes to Individual Savings Accounts (ISAs) taking effect from 6 April 2027 — and they will significantly affect how people save and invest. The key changes: the annual Cash ISA allowance for under-65s drops from £20,000 to £12,000, and interest earned on uninvested cash sitting inside Stocks and Shares ISAs will face a new 22% tax charge. The message is clear: the government wants savers to invest, not simply park cash tax-free.

What's Changing and When

Cash ISA allowance cut. From 6 April 2027, anyone under 65 will only be able to put £12,000 per year into a Cash ISA, down from the current £20,000. Those aged 65 and over are expected to retain access to the higher allowance, though full details of the exemption criteria are still to be confirmed by HMRC.

The total annual ISA allowance (across all ISA types) remains at £20,000. This means the remaining £8,000 of your allowance must go into a Stocks and Shares ISA, Lifetime ISA, or Innovative Finance ISA if you want to use your full limit.

New 22% tax on uninvested cash in investment ISAs. A separate measure introduces a flat 22% tax charge on interest earned on cash held uninvested inside Stocks and Shares ISAs and Innovative Finance ISAs. Currently, all interest and growth inside an ISA wrapper is completely tax-free. From April 2027, leaving cash sitting in an investment ISA account — rather than actually buying shares, funds, or bonds — will incur a tax charge.

Why This Matters Right Now

The 2026–27 tax year (running from 6 April 2026 to 5 April 2027) is your final opportunity to put up to £20,000 into a Cash ISA under the current rules. If you have cash savings and haven't maximised your ISA allowance yet, this year is the time to do it.

After April 2027, the structural shift means the ISA landscape will more closely resemble the US Roth IRA, which is designed primarily for long-term investment rather than cash saving. In Australia, the superannuation system similarly incentivises investment over cash holding.

What This Means for Different Types of Savers

Cash savers who don't invest: you will still be able to shelter £12,000 per year in a Cash ISA tax-free if you are under 65. For most people, this is still a meaningful amount — the average UK savings balance is around £11,000. But if you currently maximise the full £20,000 in a Cash ISA, you will lose £8,000 of tax-free cash shelter per year.

Investors who use Stocks and Shares ISAs: check whether you hold any uninvested cash in your account. Platforms like Vanguard, Hargreaves Lansdown, and Freetrade typically hold a cash buffer between investments. From April 2027, that buffer will attract a 22% tax on any interest it earns. Either invest the cash, or move it to a Cash ISA.

Higher earners and savers who maximise ISA allowances: the combination of the Cash ISA cut and the uninvested cash charge strongly signals a pivot toward investment. If you hold significant cash savings, consider whether Stocks and Shares ISAs with low-cost index funds could serve you better long-term. This year's £20,000 Cash ISA allowance is the last at the full level.

The Broader Policy Picture

The government's stated rationale is to direct more household savings into productive investment — boosting the stock market and, by extension, UK economic growth. Critics argue the Cash ISA cut disproportionately affects cautious savers who rely on cash savings for security. Which? has called for the changes to be reconsidered, particularly given the energy price cap increase pushing household budgets.

The Lifetime ISA (LISA) — which provides a 25% bonus on up to £4,000 per year for first-time buyers or retirement saving — is unchanged by these reforms, as is the Junior ISA (JISA) allowance of £9,000.

Action Checklist: Prepare for April 2027

• Maximise your 2026–27 Cash ISA: contribute up to £20,000 before 5 April 2027 — this is the last full-limit year for under-65s
• Review uninvested cash in Stocks and Shares ISAs: log in to your investment platform and check your cash position; either invest it or plan to move it
• Consider shifting future ISA strategy: with only £12,000 allowed in cash from next April, evaluate whether your remaining allowance should go into a Stocks and Shares ISA
• If you're 65 or over: await HMRC clarification on whether the higher allowance will be preserved; assume the current limit applies until further notice
• Check ISA transfer rules: you can transfer previous years' Cash ISA savings to Stocks and Shares ISA tax-free if you want to invest

Key Numbers

• £20,000: current annual ISA allowance — all types, this tax year
• £12,000: Cash ISA limit for under-65s from April 2027
• 22%: new tax charge on uninvested cash interest in Stocks and Shares ISAs from April 2027
• £9,000: Junior ISA allowance (unchanged)
• 5 April 2027: deadline to use the full £20,000 Cash ISA allowance

Sources

• Gov.uk: Individual Savings Accounts (ISAs)
• Naseems Accountants: Business news England July 2026
• MoneySavingExpert: Stocks and Shares ISAs
• Gov.uk: Junior ISA

Educational content only — not financial advice.